Posts tagged ‘farmer suicide’

Even though I see much sense in the arguments forwarded by free market supporting classical economists in the diagnosis of current economic crisis, I have not yet made any opinion that it is always right and a general solution available for economic prosperity. However I am convinced that the current economic path of producing little and consuming more on borrowed money and then punishing the real wealth generators by printing currency and raising inflation is nothing but a daylight robbery of those who are producing for the economy and enabling its sustenance.

It reminds me the story of that farmer who was having a hen that used to lay golden eggs. One day he thought, why not take all the eggs together: and he ripped apart the stomach of the hen thus loosing what he had. Much in the same way, we should understand that the hen in our economy are our farmers and producers who are producing essential commodities for us, so that others can invest labour, in either producing goods for them or providing welfare to them, through services. We must not forget that these farmers and producers, invest their hard earned wealth and bear the burden of service sector and deserves in return the fruits of services, such as research and development, education, supporting administration etc or goods produced by secondary sector like car, TV, furniture etc. But if you look at our society in India, what is that we have done for the people employed in primary sector? What is their standard of living? What incentives our system provides one to work in rural areas, agriculture or primary sector.

Due to availability of supplies in villages, people living in the rural areas undertake employment in agriculture and related industries. They require better irrigation facilities, electricity to produce etc but they are left on their own to arrange means for their living. In the absence of any cold storage these people are forced to sell their produce in less than their cost prices. Rising cost of agriculture combined with inflation has forced farmers to commit suicides and according to India’s National Crime Records Bureau estimates; approximately 184000 farmers have committed suicide from 1995 to 2007. Isn’t this a tragic irony, that those who toil hard in the fields, bear high risks and generate real wealth for the economy are the ones who are given least of the share in the wealth of economy?

As I have explained earlier that service sector does not produce. In other words, society consumes through service sector which means people in the service sector should act in the welfare of the state and at all point of time society should strive to keep only bare minimum people in service sector so that the producers should not feel the pinch. In fact in the ideal society it is the producer who should be able to decide if he needs any service or not because he is the one who pays for that with his labour. However government spending on the unproductive service sector with no or limited accountabilities combined with fat salaries only attract producers towards it. Due to fewer incentives, people who have options are moving to areas where the return on investment is higher to an individual so that he can lead a better life. So unsurprisingly people chose to quit their fields and move to cities seeking employment in service sector which thrives on the support of government. Even though this migration is, for most, humiliating and painful, poor people are forced to embrace it to escape from the desperate circumstances they were going through and which has lead others to commit suicide. A recent example highlighting this plight is the egregious attack on migrants by Raj Thackeray’s goons. Apparently, this does no help in increasing production in the economy.

Last 20 years of government policies have only compounded the problems. A large and unproductive service sector with plentiful artificially created wealth of paper money has encouraged reckless imports for consumption resulting in a rising trade deficit for the country, while at the same time, ripping apart the stomach of the hen that lays golden eggs for us and pushing our producing class to commit suicide. Not only this indigenous production by large network of small scale industries has been allowed to wipe off by pitting them against large foreign multinational companies who have glutted their goods in ultra low prices thereby making manufacturing unviable by the small industries. Result: We are borrowing heavily to run our nation and imports and trade-deficits are rising at horrendous rate threatening our economy with a debt default. S&P rating only substantiates that.

One argument that is often given to justify the import bill is that the import is being done in capital goods to increase exports. First I disagree with it because the data published by ministry of commerce does not suggest so, but well, if 20 years of compounding trade deficit, horrendously increasing debt has not given us a trade surplus then I wonder when our investment will pay off? Similarly arguments are given in favour of pitting our small manufactures against foreign multinationals. One argument is that the MNCs will bring with them technical knowledge. There are no shortcuts to gain technical knowledge especially when it is the bread and butter for these companies who will never allow it to be shared or leaked out. We can see how apple, Google and all these company fight for IP rights. Another argument that is given is about quality due to competition. First of all by destroying our small scale manufacturers who were competing with each other we have ourselves destroyed competition and left the field empty for the small number of big players, who once are firmly settled, thereafter start dictating terms. Not going into further arguments, the proof of the pudding is in the eating. The results shows us 20 years and where we are: We have a large trade deficit that is only increasing, external debt increasing, inflation increasing resulting in poor credit ratings that was negative until recently and now just stable (even though I believe these agencies are only too kind and late riser).

Every year our country, similar to US, UK, PIIGS (Portugal, Ireland, Italy, Greece and Spain) and many countries of the world, borrows more than it produces (fiscal deficit), accumulating debt. They borrowed money from countries that produces for the world like China, Japan, and Germany etc. This borrowed money enables more spending which is then taken into account for calculation of growth. It is these figures and indexes which are shown to us by Governments and vested interest groups who have attained mastery in the art of manufacturing complexity in otherwise simple economic principals so that the poor common man loose his economic common sense and start trusting those who rob them of their wealth. The problem is compounded when the borrowed money is not spent to increase production but spent on unproductive service sector enabling high consumption. This coupled with government policies supporting unproductive people and punishing real wealth generators only acts as a catalyst towards the fall of economy.

Rising inflation caused by printing of money ultimately results in increase of price of the commodities if the supply is not increased. What if the prices are contained by external and internal borrowings? This will help temporarily in containing the prices but eventually result in accumulation of debt and a possible default. This means that there are not enough goods in the market because internal production was never sufficient and that’s why borrowings were done. Due to higher debts or default the continuing borrowings becomes unsustainable, leaving people only with loads of paper currency that was printed to create artificial growth. This is called currency crisis or hyperinflation: A similar situation as the world has seen in Argentina, Yugoslavia, and Zimbabwe etc.

Those who take pride in our “highly skilled” IT-ITES and other service class who provides services to countries like US and UK must understand that the present arrangement also is unsustainable. This is because these countries to which we provide services are already bankrupt as they have long back abjured their path of hard work and labour but due to their past reputation are still able to thrive on borrowed money. This irresponsible behaviour has resulted in accumulation of massive debt which can not be thought to be repaid by any ray of imagination. Their house of cards is set to fall. But when this will happen and US dollar will loose its reserved currency status, countries like India will go through much pain. As everywhere in the world, the food prices and essential commodities will sky rocket and people will have loads of money that won’t buy them anything. Even in creditor countries like China, Japan, Germany, over dependence on exports and external markets will result in deflation and job losses in short run.

As great masters have said, I firmly believe that we are heading towards an unprecedented time when the events will unfold in such a way that shatters many perceptions, believes, faiths, prejudices while at the same time making people learn the real principals for economic prosperity first hand from their own experiences leading to a renaissance or new age of truth and righteousness.